CHANNELSIDE SERVICES,

LLC

VERSUS

CHRYSOCHOOS GROUP, INC.

*

*

*

*

* * * * * * *

NO. 2015-CA-0064

COURT OF APPEAL

FOURTH CIRCUIT

STATE OF LOUISIANA

APPEAL FROM

CIVIL DISTRICT COURT, ORLEANS PARISH

NO. 2013-10835, DIVISION “L-6”

Honorable Kern A. Reese, Judge

* * * * * *

JUDGE SANDRA CABRINA JENKINS

* * * * * *

(Court composed of Judge Max N. Tobias, Jr.,

Judge Madeleine M. Landrieu, Judge Sandra Cabrina Jenkins)

TOBIAS, J., CONCURS.

Gerard George Metzger

Charles Thach Curtis, Jr.

GERARD G. METZGER, APLC

829 Baronne Street

New Orleans, LA 70113

COUNSEL FOR PLAINTIFF/APPELLANT CHANNELSIDE SERVICES, LLC

Leonard L. Levenson

Colleen B. Gannon

Christian W. Helmke

Donna R. Barrios

WEIGAND & LEVENSON

427 Gravier Street, Third Floor

New Orleans, LA 70130

COUNSEL FOR NON-PARTY APPELLEE/APPELLANT

JTMC ENTERPRISE, LLC

MOTION TO DISMISS APPEAL DENIED;

REVERSED IN PART AND AMENDED IN PART

MAY 13, 2016

1

This is an appeal from a judgment partially granting and partially denying

opposing motions to quash and to compel a records deposition and subpoena duces

tecum issued to JTMC Enterprises, LLC (“JTMC”), a non-party to the underlying

suit, for the production of financial documents and tax returns. The trial court‟s

September 25, 2014 judgment ordered JTMC to deliver certain financial

documentation for an in camera inspection and further ruling from the trial court.

JTMC now appeals the trial court‟s judgment partially denying its motion to quash

and partially granting the motion to compel; Channelside Services, LLC

(“Channelside”) appeals the trial court‟s judgment partially denying its motion to

compel.

Upon our review of this matter, in light of applicable Louisiana law, we find

the trial court erred in partially granting the motion to compel and in ordering

JTMC to produce certain financial documents of its limited liability company

(LLC), even for the limited purpose of an in camera inspection and review by the

trial court. For the following reasons, we reverse that part of the trial court‟s

2

judgment ordering the production of financial documents of JTMC for an in

camera inspection, and we amend the judgment to wholly grant the motion to

quash filed by JTMC and wholly deny the motion to compel filed by Channelside.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff, Channelside, is the judgment creditor of defendant, Chysochoos

Group, Inc. (“CGI”), a Florida corporation, pursuant to a money judgment

rendered and signed on October 25, 2013 in the Thirteenth Judicial Circuit Court

for Hillsborough County, Florida. Channelside initiated the underlying suit against

CGI by filing an ex parte petition to make the Florida judgment executory in the

Civil District Court for Orleans Parish, in accordance with the Louisiana

Enforcement of Foreign Judgments Act, La. R.S. 13:4241, et seq. On November

21, 2013, the trial court ordered Channelside‟s judgment against CGI be made

executory in Civil District Court.

On January 7, 2014, seeking to enforce its rights as a judgment creditor,

Channelside filed a motion and application for a charging order against JTMC, a

Louisiana limited liability company in which CGI owns a fifty percent membership

interest.1 Pursuant to La. R.S. 12:1331 of the Louisiana Limited Liability

Companies Act, Channelside sought to charge CGI‟s membership interest in JTMC

with the payment of the unsatisfied amount of the Florida judgment, $352,325.81,

1 The record reflects that JTMC was formed as a Louisiana LLC on June 6, 2008, in accordance

with the provisions of the Louisiana Limited Liability Companies Act, La. R.S. 12:§1301, et seq.

The initial report of JTMC filed with the Louisiana Secretary of State lists the registered office of

JTMC at 227 Bourbon Street in New Orleans. The management of JTMC is reserved to its three

members: TFS I, LLC; TFS II, LLC; and CGI. The record further reflects that JTMC is the

100% owner of The Beach on Bourbon, located at 227 Bourbon Street.

3

with interest.2 Following a hearing on Channelside‟s motion, the trial court

granted the motion for a charging order and charged CGI‟s membership interest in

JTMC with payment of the unsatisfied amount of Channelside‟s judgment against

CGI.

On April 23, 2014, Channelside issued a notice of records deposition and

subpoena duces tecum to JTMC for the production of various business and

financial documents of the LLC.3 In response, JTMC filed a motion to quash the

records deposition and subpoena. JTMC specifically sought to quash the

production of its bank accounts, account registers, federal and state income tax

returns, sales tax returns, financial statements, and general ledgers from 2008 to the

present. Channelside then filed an opposition to JTMC‟s motion to quash and a

motion to compel JTMC to respond to the records deposition and subpoena duces

tecum. The trial court set the opposing motions to quash and to compel for a

hearing on September 12, 2014.

In support of its motion to compel, Channelside argued that all of the

requested discovery was necessary for the enforcement of the charging order and

the execution of Channelside‟s judgment against CGI. Channelside sought to

2 La. R.S. 12:§1331 provides,

On application to a court of competent jurisdiction by any judgment creditor of a

member, the court may charge the membership interest of the member with

payment of the unsatisfied amount of judgment with interest. To the extent so

charged, the judgment creditor shall have only the rights of an assignee of the

membership interest. This Chapter shall not deprive any member of the benefit of

any exemption laws applicable to his membership interest. 3 The subpoena requested production by JTMC of all applications for alcoholic beverage

licenses, leases and subleases, or assignments of such, for the premises at 225-227 Bourbon

Street; all bank account statements and registers; all federal and state income tax returns; all state

sales tax returns; all Operating Agreements and amendments; all financial statements; and all

general ledgers from 2008 to the present.

4

examine JTMC‟s documents to discover any amounts owed to CGI by JTMC that

Channelside could claim in execution of its judgment against CGI. Channelside

further argued that Louisiana statutes pertaining to judgment debtor examination

and discovery permitted a judgment creditor to examine any third party upon any

matter relating to the judgment debtor‟s property.

In support of the motion to quash, JTMC argued that the requested discovery

was unduly burdensome, not supported by a showing of good cause, and restricted

under specific provisions of the Louisiana LLC Act. Pursuant to specific

provisions of the Act, JTMC argued that the charging order obtained by

Channelside only entitled Channelside to the rights of an assignee of a membership

interest, and an assignee does not have the right to inspect the books and records of

an LLC.

At the conclusion of the hearing, the trial court partially granted and partially

denied the motion to compel and the motion to quash. The trial court‟s September

25, 2014 judgment ordered JTMC to submit any evidence of indebtedness by

JTMC to CGI, “including, but not limited to promissory notes, loans, payments or

distributions,” from January 1, 2011 to the present for an in camera inspection to

review whether the documentation contains any discoverable information to be

produced to Channelside.4

4 The trial court‟s September 25, 2014 judgment stated in relevant part:

IT IS ORDERED, ADJUDGED AND DECREED that the Motion to Compel

filed on behalf of Channelside Services, LLC, is GRANTED IN PART and

DENIED IN PART and the Motion to Quash filed on behalf of JTMC Enterprises,

LLC, is GRANTED IN PART and DENIED IN PART as follows:

5

On September 30, 2014, Channelside filed a notice of intent to seek

supervisory review of the trial court‟s judgment and, subsequently, filed a timely

writ application with this Court. Prior to this Court‟s disposition in that writ

application, on October 31, 2014, JTMC filed a motion and order for suspensive

appeal of the trial court‟s September 25, 2014 judgment; that same day, the trial

court granted the suspensive appeal. On November 12, 2014, while its supervisory

writ was still pending, Channelside filed a petition for devolutive appeal of the

September 25, 2014 judgment; the trial court granted the devolutive appeal. On

November 18, 2014, this Court denied Channelside‟s writ application.5 Both

appeals were timely filed with this Court and lodged under the same appeal

number.6

Before addressing the merits of the cross-appeals of the trial court‟s

September 25, 2014 judgment, we briefly address JTMC‟s motion to dismiss the

appeal filed by Channelside.

MOTION TO DISMISS APPEAL

JTMC filed a motion to dismiss the devolutive appeal filed by Channelside.

JTMC argues that Channelside‟s appeal should be dismissed because it raises the

On or before October 3, 2014, JTMC Enterprises, LLC shall deliver to the Court

for an in camera inspection evidence of any indebtedness by JTMC Enterprises,

LLC unto Chysochoos Group, Inc., from January 1, 2011 through the present

including, but not limited to promissory notes, loans, payments or distributions for

review and further ruling by the Court. 5 Channelside Services, LLC v. Chrrrysochoos Group, Inc., unpub., 14-1156 (La. App. 4 Cir.

11/18/14). 6 JTMC filed a motion to consolidate the suspensive appeal filed by JTMC and the devolutive

appeal filed by Channelside, in the interest of clarifying the status of the appeals and the parties

thereto. Although JTMC and Channelside were each granted an appeal, the entire record of the

case was lodged with this Court under one appeal number and all briefs and motions were filed

under appeal number 2015-0064. Thus, we find the motion to consolidate is moot.

6

same issue on appeal as presented for supervisory review within Channelside‟s

prior writ application, which was denied by this Court. Channelside Services, LLC

v. Chrrrysochoos Group, Inc., unpub., 14-1156 (La. App. 4 Cir. 11/18/14). JTMC

argues that this Court properly denied Channelside‟s writ application and, pursuant

to the law of the case doctrine, if this Court finds no error in the writ disposition

then Channelside‟s appeal should be dismissed.

Although Channelside‟s appeal raises the same issue as previously presented

to this Court for supervisory review, the denial of Channelside‟s writ application

does not bar our reconsideration of, or a different conclusion on, the same issue

when raised on appeal from a final judgment. See Leblanc v. 1555 Poydras Corp.,

14-0610, p. 6 (La. App. 4 Cir. 12/17/14), 156 So.3d 1222, 1226 (collecting cases).

“The denial of a writ by an appellate court is nothing more than the appellate court

declining to exercise its supervisory jurisdiction.” Johnson v. Mike Anderson’s

Seafood, Inc., 13-0379, pp. 5-6 (La. App. 4 Cir. 6/11/14), 144 So.3d 125, 130.

Language or reasons given in a writ denial are without effect and have no binding

force. Davis v. Jazz Casino Co., L.L.C., 03-0276, 03-1223, p. 1 (La. 6/6/03), 849

So.2d 497, 498 (citing Bulot v. Intracoastal Tubular Services, Inc., 02-1035 (La.

6/14/02), 817 So.2d 1149). In this case, the panel considering the earlier writ

application simply declined to exercise supervisory jurisdiction and denied the writ

without any reasons. Therefore, we give no deference to this Court‟s previous

7

denial of Channelside‟s writ application raising the same issue, and we deny the

motion to dismiss Channelside‟s appeal.7

DISCUSSION

Before addressing the merits of each appeal, we note that, generally, a

judgment involving a preliminary discovery matter would be an interlocutory,

nonappealable judgment. See La. C.C.P. art. 1841; La. C.C.P. art. 2083(C). In this

case, however, the judgment at issue wholly resolves the merits of the singular

issue between JTMC, a non-party to the underlying suit, and the party seeking

discovery, Channelside. “The jurisprudence in this circumstance is to the effect

that a judgment on a motion to quash a deposition subpoena is in fact appealable

because it resolves all of the issues between the non-party deponent and the party

seeking the deposition.” Gariepy v. Evans Industries, Inc., 06-106, p. 4 (La. App.

5 Cir. 9/25/07), 968 So.2d 753, 754-55 (citing Larriviere v. Howard, 00-186, p.3

(La. App. 3 Cir. 10/11/00), 771 So.2d 747, 750); see St. Bernard Port, Harbor &

Terminal Dist. v. Violet Dock Port, Inc., L.L.C., 14-0286, p. 1 (La. App. 4 Cir.

8/27/14), 147 So.3d 1266. Therefore, in accordance with the relevant

jurisprudence, we conclude that the judgment at issue is a final, appealable

7 In its appellee brief to Channelside‟s appeal, JTMC also argues that there is no basis for

appellate jurisdiction over Channelside‟s appeal because the proper procedure to seek further

review of this Court‟s previous writ disposition is to request a rehearing or apply to the Louisiana

Supreme Court for a writ of certiorari. We find no merit in this argument. The Uniform Rules do

not provide for a rehearing from a denial of an application for supervisory writs. State v.

Crandell, 05-1060, p. 3 (La. 3/10/06), 924 So.2d 122, 124; see Y.F.B. v. R.D.R., 01-0345 (La.

4/12/01), 787 So.2d 276. An application for rehearing will be considered in cases in which the

appellate court has (1) granted a writ application on the merits; (2) dismissed an appeal; (3) or

ruled on the merits of an appeal. Uniform Rules-Court of Appeal Rule 2-18.7; Rule 4-9. As

discussed with regard to the motion to dismiss Channelside‟s appeal, this Court‟s previous denial

of Channelside‟s writ application does not preclude this Court‟s reconsideration of the same

issue on appeal of a final judgment.

8

judgment. We now turn to address the merits of each appeal from the trial court‟s

September 25, 2014 final judgment.

In their respective appeals of the trial court‟s judgment, JTMC and

Channelside each argue that the trial court abused its discretion by partially

granting and partially denying the motion to quash filed by JTMC and the motion

to compel filed by Channelside. Channelside seeks reversal of the trial court‟s

judgment insofar as the trial court partially denied its motion to compel by refusing

to order the production of all requested documents from JTMC to Channelside.

JTMC seeks reversal of the trial court‟s judgment insofar as it partially denies

JTMC‟s motion to quash the records deposition and subpoena duces tecum,

partially grants Channelside‟s motion to compel, and orders the production of

certain financial documents of JTMC for an in camera inspection.

In ruling upon discovery matters, the trial court is vested with broad

discretion and, upon review, an appellate court should not disturb such rulings

absent a clear abuse of discretion. Sercovich v. Sercovich, 11-1780, p. 5 (La. App.

4 Cir. 6/13/12), 96 So.3d 600, 603.

Channelside, in its appeal, argues that the trial court erred in failing to

wholly grant its motion to compel and refusing to order production of the requested

discovery from JTMC to Channelside in accordance with the general rules of

discovery and the more specific, procedural rule of La. C.C.P. art. 2451(B). In

reply to Channelside‟s appeal and in support of its own appeal, JTMC argues that

specific provisions of the Louisiana Limited Liability Companies Act, La. R.S.

9

12:1301, et seq., expressly restrict a judgment creditor of a member of an LLC to

obtain statutorily limited rights as an assignee of the membership interest that

specifically do not include the right to inspect the records of the LLC. JTMC

argues that the more specific LLC statutes are controlling over the more general

statutes governing discovery and judgment debtor examination. We begin our

analysis by reviewing the statutes relied upon by Channelside.

La. C.C.P. art. 2451 governs the examination of judgment debtors and third

parties by judgment creditors. With regard to the examination of third parties, La.

C.C.P. art. 2451(B) provides, “[i]n aid of execution of the judgment, the judgment

creditor may also examine any person upon any matter relating to the judgment

debtor‟s property, as provided in Articles 1421 through 1472.” The intent of La.

C.C.P. art. 2451 is “to assist creditors in executing their judgments by providing

them a means to discover assets or property belonging to the debtor which may be

subject to seizure.” Parish Nat. Bank v. Lane, 397 So.2d 1282, 1284 (La. 1981);

see also Cole, Evans & Peterson v. T.F. Mgmt., Inc., 40,774-780, p. 3 (La. App. 2

Cir. 7/7/06), 935 So.2d 841, 843.

La. C.C.P. arts. 1421 through 1472 define the scope and permissible

methods of discovery, pertinent in this case to the examination of a third party,

JTMC. Generally, a party may obtain discovery of any matter, not privileged,

which is relevant to the subject matter involved in the pending litigation,

“including the existence, description, nature, custody, condition, and location of

any books, documents, or other tangible things […].” La. C.C.P. art. 1422.

10

“Relevant evidence is „evidence having any tendency to make the existence of any

fact that is of consequence to the determination of the action more probable or less

probable than it would be without the evidence.” Sercovich v. Sercovich, 11-1780,

pp.4-5 (La. App. 4 Cir. 6/13/12), 96 So.3d 600, 603. “The test of discoverability is

not whether the particular information sought will be admissible at trial, but

whether the information sought appears reasonably calculated to lead to the

discovery of admissible evidence.” Id. (quoting Wollerson v. Wollerson, 29,183, p.

2 (La. App. 2 Cir. 1/22/97), 687 So.2d 663, 665); see also Lehmann v. American

Southern Home Ins. Co., 615 So.2d 923, 925 (La. App. 1st Cir. 1993).

It is well-established in Louisiana jurisprudence that discovery statutes are to

be liberally and broadly construed to achieve certain basic objectives of the

discovery process: (1) to afford all parties a fair opportunity to obtain facts

pertinent to pending litigation; (2) to discover the true facts and compel disclosure

of these facts wherever they may be found; (3) to assist litigants in preparing for

trial; (4) to narrow and clarify the issues between the parties; and (5) to facilitate

and expedite the legal process by encouraging settlement or abandonment of less

than meritorious claims. See Quality Environmental Processes, Inc. v. I.P.

Petroleum Co., Inc., 13-1582, 13-1588, 13-1703, p. 22 (La. 5/7/14), 144 So.3d

1011, 1026 (quoting Hodges v. Southern Farm Bureau Cas. Ins. Co., 433 So.2d

125, 129 (La. 1983)); see also Sercovich, 11-1780, p. 5, 96 So.3d at 603.

However, there are limitations on discovery, particularly when justice requires that

a party or other person be protected from annoyance, embarrassment, oppression,

11

or undue burden or expense. Stolzle v. Safety & Systems Assur. Consultants, Inc.,

02-1197, p. 2 (La. 5/24/02), 819 So.2d 287, 289; see La. C.C.P. art. 1426. In

addition, Louisiana jurisprudence has required a showing of relevancy and good

cause by a party seeking production of records from a non-party. Id., 02-1197, p.

3, 819 So.2d at 289 (citing Ouachita Nat’l Bank in Monroe v. Palowsky, 554 So.2d

108 (La. App. 2nd Cir. 1989); see St. Bernard Port, Harbor & Terminal Dist. v.

Violet Dock Port, Inc., L.L.C., 14-0286, p. 5 (La. App. 4 Cir. 8/27/14), 147 So.3d

1266, 1268.

Relying primarily on the provisions of La. C.C.P. art. 2451(B), Channelside

argues that it, as a judgment creditor, is entitled to obtain and examine all of the

requested financial documents from JTMC because those documents are directly

related to the property interests of its judgment debtor, CGI. Since CGI owns a

fifty percent membership interest in JTMC, Channelside argues that the

examination of the subpoenaed documents will aid in the execution of its judgment

against CGI by allowing Channelside to determine if any indebtedness is owed by

JTMC to CGI, which Channelside could then seize in satisfaction of the judgment.

In addition, Channelside argues that its requested discovery complies with

applicable rules of discovery because JTMC‟s financial statements and tax returns

are relevant, not privileged, and necessary for the enforcement of its judgment

against CGI, and CGI‟s fifty percent membership interest in JTMC constitutes

sufficiently good cause for the production of those documents. Finally,

Channelside argues that Louisiana courts have long recognized that the procedural

12

rules pertaining to the examination of judgment debtors are to be liberally

construed in favor of a judgment creditor in aid of the execution of a judgment.

While we agree that La. C.C.P. art. 2451 and the related rules of discovery,

La. C.C.P. arts. 1421 through 1472, generally permit discovery by a judgment

creditor of a third or non-party to a pending litigation, we must balance the rights

of a judgment creditor to obtain information in execution of its judgment against

the interests and rights of the third party to be protected from harassment, undue

burden, and financial loss. See Sercovich, 11-1780, pp. 7-8, 96 So.3d at 604;

Bianchi v. Pattison Pontiac Co., 258 So.2d 388, 390 (La. App. 4th Cir. 1972). In

this case, we must consider the interests of and the rights afforded to JTMC as a

non-party, Louisiana LLC under the Louisiana Limited Liability Companies Act,

La. R.S. 12:1301, et seq.

Under the Louisiana LLC Act, a member‟s interest in the LLC is personal

property that is separate and distinct from the property of the LLC. See La. R.S.

12:1329. “A member of an LLC has no direct interest in the LLC‟s property.

Therefore, a member cannot make the LLC‟s property available to the member‟s

creditors who are not also creditor‟s of the LLC.” Susan Kalinka et al., Limited

Liability Companies and Partnerships: A Guide to Business and Tax Planning, 9

La. Civ. L. Treatise §1:44 (4th ed. 2015). Conversely, a creditor of a member

cannot seize any of the LLC‟s property in satisfaction of the member‟s debt.

However, pursuant to La. R.S. 12:1331 of the Louisiana LLC Act, a judgment

creditor of a member of an LLC may apply to a court of competent jurisdiction for

13

a charging order, whereby “the court may charge the membership interest of the

member with payment of the unsatisfied amount of judgment with interest.” La.

R.S. 12:1331 further provides that, “[t]o the extent so charged, the judgment

creditor shall have only the rights of an assignee of the membership interest.”

The assignment of a membership interest is governed by the provisions of

La. R.S. 12:1330, which states in pertinent part:

A. […] An assignment of a membership interest shall not entitle the

assignee to become or to exercise any rights or powers of a

member until such time as he is admitted in accordance with the

provisions of this Chapter. An assignment shall entitle the assignee

only to receive such distribution or distributions, to share in such

profits and losses, and to receive such allocation of income, gain,

loss, deduction, credit, or similar item to which the assignor was

entitled to the extent assigned.

B. Unless otherwise provided in the articles of organization or an

operating agreement, the pledge of or granting of a security interest,

lien, or other encumbrance in or against any or all of the membership

interest of a member shall not cause the member to cease to be a

member or to have the power to exercise any rights or powers of a

member.

(emphasis added)

In addition, La. R.S. 12:1332 addresses the rights of an assignee of a

membership interest, in pertinent part, as follows:

A. Except as otherwise provided in the articles of organization or a

written operating agreement:

(1) An assignee of an interest in a limited liability company shall not

become a member or participate in the management of the limited

liability company unless the other members unanimously consent in

writing.

(2) Until the assignee of an interest in a limited liability becomes a

member, the assignor shall continue to be a member.

Pursuant to La. R.S. 12:1330 through 1332, the assignment of a member‟s

interest in the LLC effectively separates the membership interest into two sets of

rights: financial rights and management rights. See William A. Neilson,

14

Uncertainty in Death and Taxes—the Need to Reform Louisiana’s Limited Liability

Company Laws, 60 Loy. L. Rev. 33, 35-36 (Spring, 2014). The assignee is granted

only the member‟s financial rights while the original member retains management

rights and powers, unless and until the assignee become a member. Accordingly, a

judgment creditor who obtains a charging order, thereby becoming an assignee of a

member‟s interest, is entitled to share in the profits and losses and receive the

distributions to which the member was entitled. See Kalinka, supra. However, the

judgment creditor/assignee is not entitled to exercise any rights or powers

associated with the management of the LLC.

The management and management rights of members of LLCs are further

governed by La. R.S. 12:1311 through 1320. Particularly relevant to this case, La.

R.S. 12:1319 governs the records and information of the LLC and provides, in

pertinent part, as follows:

B. Unless otherwise provided in the articles of organization or an

operating agreement, a member may do any of the following:

(1) At the member‟s own expense, inspect and copy any limited

liability company record upon reasonable request during ordinary

business hours.

(2) Obtain from time to time upon reasonable demand the following:

(a) True and complete information regarding the state of the

business and financial condition of the limited liability company.

(b) Promptly after becoming available, a copy of the limited

liability company‟s federal and state income tax returns for each year.

(c) Other information regarding the affairs of the limited

liability company as is just and reasonable.

(3) Demand a formal accounting of the limited liability company‟s

affairs whenever circumstances render it just and reasonable.

…

D. Except as otherwise provided in the articles of organization or an

operating agreement, a limited liability company and its members,

managers, and agents may recognize and treat a person registered on

its records as a member, as such for all purposes, and as the person

15

exclusively entitled to have and to exercise all rights and privileges

incident to the ownership of such membership interests. Rights under

this Section shall not be affected by any actual or constructive notice

which the limited liability company or any of its managers, members,

or agents may have to the contrary.

(emphasis added)

According to the language of La. R.S. 12:1319, the right to obtain and

inspect the LLC‟s records is reserved to members of the LLC. See Kinkle v.

R.D.C., L.L.C., 04-1092, p. 14 (La. App. 3 Cir. 12/8/04), 889 So.2d 405, 413

(finding that an assignee of a member‟s interest is not entitled to inspect the LLC‟s

records, “since this action is reserved for members of the LLC” by La. R.S.

12:1319(B)(1)) (citing Susan Kalinka, Death of a Member of an LLC, 57 La. L.

Rev. 451, 452 (1997)).

Relying on the above cited provisions of the Louisiana LLC Act regarding

the assignment of a membership interest, JTMC argues that the charging order

obtained by Channelside only entitles Channelside to the rights of an assignee of

CGI‟s membership interest in JTMC and those rights do not include the inspection

of the LLC‟s records. JTMC argues that Channelside is entitled only to receive

distributions or allocations of income and share in the profits, as provided in La.

R.S. 12:1330, but the right or power to obtain and inspect the financial statements

and tax returns of the LLC remains with the original member, CGI, unless and

until Channelside becomes a member of JTMC. Accordingly, JTMC argues that

Channelside‟s notice of records deposition and subpoena duces tecum must be

quashed. Based upon the clear language of the applicable LLC statutes, we agree.

16

The facts and posture of this case fall squarely within the parameters of the

Louisiana LLC Act. Channelside obtained a charging order pursuant to La. R.S.

12:1331, thereby charging the membership interest of CGI in JTMC with the

payment of the unsatisfied amount of Channelside‟s judgment against CGI. We

note that the trial court‟s judgment granting the charging order specifically states

that Channelside “shall have to the extent so charged only the rights of an assignee

of the membership interest” of CGI in JTMC. The record reflects that Channelside

has not been admitted as a member of JTMC; Channelside remains only an

assignee of CGI‟s membership interest in JTMC.8

According to La. R.S. 12:1330, Channelside, as an assignee of a

membership interest, shall not be entitled to exercise any rights or powers of a

member until such time as it is admitted as a member; the assignment entitles

Channelside only to receive distributions, share in profits and losses, and to receive

allocations of “income, gain, loss, deduction, credit, or similar item” to which CGI

was entitled. La. R.S. 12:1319 further explains that only a member of the LLC has

the right to obtain and inspect the business and financial information and tax

returns of the LLC.

“When a law is clear and unambiguous and its application does not lead to

absurd consequences, the law shall be applied as written, and no further

8 At the hearing on Channelside‟s motion and application for a charging order, on March 28,

2014, Channelside offered and introduced into evidence a certified copy of JTMC‟s annual

report filed with the Louisiana Secretary of State‟s office. JTMC‟s articles of organization do

not include any provisions regarding the rights of an assignee of a membership interest.

Therefore, in accordance with La. R.S. 12:1332, Channelside shall not become a member of

JTMC unless and until the other members of JTMC unanimously consent in writing.

17

interpretation may be made in search of the intent of the legislature.” La. C.C. art.

9. As noted by JTMC, the Louisiana LLC Act affords LLCs different and greater

protections from charging creditors of its members compared to Louisiana laws

pertaining to creditors of corporate shareholders or partners in a partnership.

Under the Louisiana Civil Code articles pertaining to partnerships, a creditor of a

partner may seize the partner‟s interest in the partnership, terminate the partner‟s

interest, and be paid an amount equal to the value of the interest as of the time of

seizure. See La. C.C. arts. 2819; 2823; see also Kalinka, 9 La. Civ. L. Treatise

§1:44. In Louisiana Business Corporation law, a creditor of a shareholder can

seize a shareholder‟s stock, thereby acquiring all of the rights associated with

holding that stock, including financial rights, voting rights, if any, and the right to

sell the stock. See Kalinka, 9 La. Civ. L. Treatise §3.2; La. R.S. 12:1-723; see

also La. R.S. 12:79 (repealed 2015). By contrast, the Louisiana LLC Act expressly

restricts judgment creditors of members of LLCs to obtaining a charging order and

being granted only the rights of an assignee of the membership interest unless and

until the assignee becomes a member.

As a general rule of statutory construction, a specific statute controls over a

broader, more general statute. See Capital City Press, L.L.C. v. La. State Univ.

System Bd. of Sup’rs, 13-2000, 13-2001, pp. 12-13 (La. 12/30/14), 168 So.3d 727,

737 (citing Burge v. State, 10-2229 (La. 2/11/11), 54 So.3d 1110, 1113). Thus,

“when two statutes deal with the same subject matter, if there is a conflict, the

statute specifically directed to the matter at issue must prevail as an exception to

18

the statute more general in character.” Id.; see State v. One 1990 GMC Sierra

Classic Truck, VIN No. 1GTCS142XL25052929, 94-0639, pp. 3-4 (La. 11/30/94),

646 So.2d 492, 494-95. Accordingly, we find that the specific provisions of the

Louisiana LLC Act are controlling in this case over the more general statutory

provisions governing discovery and the examination of judgment debtors and third

parties.

Upon review of the trial court‟s judgment, it appears that the trial court

attempted to strike a balance between the right of the judgment creditor,

Channelside, to obtain discovery in aid of execution of its judgment and the right

of the non-party LLC to be protected from undue burden, loss or damage by

applying the protective device of an in camera inspection. However, in

consideration of the applicable law, we find merit in JTMC‟s argument that the

trial court abused its discretion in partially granting Channelside‟s motion to

compel and ordering the production of certain financial documents of JTMC dating

from January 1, 2011 to the present for an in camera inspection by the trial court to

determine what information may be disclosed to Channelside.

As discussed above, Channelside does not have the right to obtain or inspect

any business or financial documents of the LLC. Consequently, none of the

documents to be produced for the in camera inspection may be disclosed to

Channelside after review by the trial court.

Furthermore, we find the trial court abused its discretion by ordering the

production of documents dating back to January 1, 2011, a date that has no

19

relevance to the underlying money judgment against CGI or the assignment of

CGI‟s membership interest to Channelside. Channelside‟s judgment against CGI

was rendered on October 25, 2013, and Channelside obtained the charging order to

become an assignee of CGI‟s membership interest in JTMC on April 8, 2014.

Accordingly, Channelside only became entitled, as an assignee of CGI‟s

membership interest, to receive any distributions, profits, etc. that were due to CGI

from JTMC as of April 8, 2014. In light of this fact, we find that the trial court‟s

order to produce documents dating back to January 1, 2011 was not sufficiently

supported by any relevance or showing of good cause. Before ordering discovery

from a third party, which has invoked its right to be protected from undue

hardship, loss, or damage, the trial court must be convinced of the relevancy and

necessity of such discovery in achieving its intended objective. See St. Bernard

Port, 14-0286, p. 5, 147 So.3d at 1268; Stolzle, 02-1197, p. 3, 819 So.2d at 289;

Bianchi, 258 So.2d at 390.

Pursuant to La. R.S. 12:1330(A), the assignment of CGI‟s membership

interest in JTMC to Channelside entitles Channelside “only to receive such

distribution or distributions, to share in such profits and losses, and to receive such

allocation of income, gain, loss, deduction, credit, or similar item to which the

assignor was entitled to the extent assigned.” While we acknowledge that some of

the documents that the trial court ordered to be produced for the in camera

inspection may contain relevant information regarding the distributions, income,

etc. due to CGI from JTMC upon the assignment of CGI‟s membership interest to

20

Channelside, we find the trial court‟s judgment is overbroad and does not

sufficiently protect the interests of JTMC as a non-party and a Louisiana LLC.

There is a lack of Louisiana jurisprudence directly on point in this matter but

we briefly discuss two cases cited by each side. Channelside contends that this

Court‟s decision in Sercovich—allowing the requested business and financial

documents of two LLCs to be produced subject to an in camera inspection by the

trial court to determine relevancy—provides precedent for the production of an

LLC‟s documents for inspection, review, and disclosure by the trial court. Id., 11-

1780, p. 8, 96 So.3d at 604. However, we find the facts of that case and the

applicable law are distinguishable from the instant case.

In Sercovich, the underlying and ongoing suit was a divorce proceeding in

which the plaintiff, Ms. Sercovich, was seeking interim and final periodic spousal

support from the defendant, Mr. Sercovich. Seeking to determine her husband‟s

interests in and income from two LLCs for the purpose of determining final

periodic support, Ms. Sercovich issued a notice of records deposition and subpoena

duces tecum to the LLCs for production of various business and financial records

covering several years. The LLCs filed a motion to quash, which the trial court

denied. This Court affirmed the trial court‟s denial of the motion to quash finding

that the information sought was reasonably calculated to lead to the discovery of

admissible evidence in the ongoing divorce proceeding. Id., 11-1780, pp. 7-8, 96

So.3d at 604. In the interest of protecting the right of third parties, however, this

21

Court ordered the trial court to conduct an in camera inspection of the documents

to determine which were relevant to the divorce proceedings. Id.

Notably, Sercovich does not involve a judgment creditor of a member of the

LLC; it involves only a party seeking discovery from a third party in the course of

ongoing litigation. There are no specific provisions of the Louisiana LLC Act

applicable to the facts of Sercovich. Consequently, the rules of discovery are

directly on point and controlling in that case. By contrast, the Louisiana LLC Act

expressly provides for the rights of judgment creditors of members of an LLC.

In our review of Louisiana jurisprudence, there appears to be only one case

that is instructive on the matter before this Court. In Kinkle v. R.D.C, 04-1092 (La.

App. 3 Cir. 12/8/04), 889 So.2d 405, plaintiff was the personal representative of the

estate of a deceased LLC member. Plaintiff filed a petition for declaratory

judgment and for accounting against the LLC, seeking judgment declaring that the

estate was entitled to its proportionate share of distributions and to an accounting

of all of the LLC‟s activities since the member‟s death. Citing the specific

provisions of La. R.S. 12:1333 of the Louisiana LLC Act, the Third Circuit found

that plaintiff, as the personal representative of the deceased member, became an

assignee of decedent‟s membership interest in the LLC. Id., 04-1092, pp. 12-13,

889 So.2d at 412. Applying the specific provisions relative to the assignment of a

membership interest, particularly La. R.S. 12:1330, the Third Circuit found that

plaintiff was entitled to all distributions to which decedent was entitled to from the

date of death, but she was not entitled to an accounting of the distributions. The

22

court found that plaintiff, “as an assignee, is not entitled to inspect [the LLC‟s]

records, since this action is reserved for members of the LLC.” Id., 04-1092, p. 14,

889 So.2d at 413. In the instant case, we likewise apply the specific provisions of

the Louisiana LLC Act and find that Channelside, as an assignee, is not entitled to

inspect any of JTMC‟s business and financial records because that right is reserved

for members of the LLC.

Upon review of this matter in light of the applicable Louisiana law, we find

that the trial court erred in partially granting Channelside‟s motion to compel and

partially denying JTMC‟s motion to quash. We further find that the trial court

abused its discretion in ordering JTMC to “deliver to the Court for an in camera

inspection evidence of any indebtedness by [JTMC] unto [CGI] from January 1,

2011 through the present including, but not limited to promissory notes, loans,

payments or distributions for review and further ruling by the Court.” In

accordance with the applicable provisions of the Louisiana LLC Act, Channelside,

as an assignee of CGI‟s membership interest in JTMC, is entitled only to receive

all distributions to which CGI was entitled to as of the date of the assignment;

Channelside is expressly restricted from inspecting the records of JTMC.

CONCLUSION

For the foregoing reasons, we reverse that part of the trial court‟s

September 25, 2014 judgment ordering JTMC to deliver documents for an in

camera inspection, review, and further ruling by the trial court. We further amend

the trial court‟s judgment to wholly grant JTMC‟s motion to quash the records

23

deposition and subpoena duces tecum and wholly deny Channelside‟s motion to

compel.

MOTION TO DISMISS APPEAL DENIED;

REVERSED IN PART AND AMENDED IN PART